Report: Google to reabsorb Nest to better compete with Amazon in smart home market

Nest was acquired in 2014 for $3.2B and later became one of the company's 'other bets.'

According to a report in The Wall Street Journal, Google is considering bringing its smart home device unit, Nest, back under the Google umbrella. Nest was acquired in January 2014 for roughly $3.2 billion.

Nest became part of Google’s “other bets” when the company formed Alphabet in 2015 and separated its other lines of business. In its most recent earnings report, the company said that “other bets” collectively brought in $302 million (vs. $197 million a year ago). Analysts believe a meaningful chunk of that belongs to Nest.

The rationale behind the potential reintegration is that the Nest team and Google teams could work more closely to develop more tightly integrated products. In addition, there are manufacturing and distribution synergies from the recombination.

The analyst consensus is that Nest has underperformed relative to its potential and early promise. It’s now just one among many dozens of home automation companies. But as Google pushes Google Home as the gateway to smart home automation, it makes considerable sense to sell a larger array of devices.

Consumer Intelligence Research Partners has found that ownership of Google Home and Echo devices triggers other smart home purchases by consumers:

The growth in smart home devices has promoted the connected accessory market. In home lighting, more than 70% of Amazon Echo and Google Home owners with smart lighting in their home, report purchasing the system after owning an Echo or Home device. Over 80% of smart thermostat users reported installing and setting up their connected accessories themselves. Over 70% of smart door lock and smoke detector systems report using Echo or Home to control the system.

Nest was Google’s second-largest purchase after Motorola’s consumer hardware division ($12.5 billion), which was eventually sold to Lenovo. Earlier this year, Google got back into that business, buying HTC’s smartphone unit for more than $1 billion.

Consumer surveys reflect that Amazon Echo and related devices control about 70 percent of the US smart speaker market today. Smart speakers are just the entry point and first round in the larger battle for home automation.

I would speculate that if the reintegration of Nest happens, we’ll probably see the Nest brand disappear over time. The Google brand is much stronger.

About The Author

Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog, Screenwerk, about connecting the dots between digital media and real-world consumer behavior. He is also VP of Strategy and Insights for the Local Search Association. Follow him on Twitter or find him at Google+.